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How low can the RBA go?

RBA

The RBA has revealed the factors behind the second rate cuts in as many months and has left the door open to further changes in the near future.

The Reserve Bank beat its previous record low this month, by taking off 25 basis points, leaving the official cash rate at 1.00 per cent.

In its minutes released on Tuesday, the governing body said that the labour market and low consumer spending were the two factors that are holding the economy back. 

“Although there had been a modest pick-up in wages growth in the private sector, wages growth had remained low overall. In combination, these factors suggested that spare capacity was likely to remain in the labour market for some time,” said RBA governor Philip Lowe. 

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Mr Lowe said higher growth in disposable income was expected to support consumption but that outlook was uncertain, despite the short term growth thanks to the tax offset.

Economists predict further cuts

Sean Langcake, senior economist at BIS Oxford Economics, believes the wage data being released by the Australian Bureau of Statistics will lead to further rate cuts by the end of the year. 

This is the first read on the labour market we have received since the RBA cut rates,” he said. 

“They will be looking for further employment growth in the coming months, and for the unemployment and underemployment rates to come down, ultimately encouraging wage growth. We expect the RBA board to cut rates at least once more this year, taking the cash rate to 0.75 per cent by year end,” said Mr Langcake.

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How low can the RBA go?
RBA
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Cameron Micallef

Cameron Micallef is a journalist at Nest Egg, writing primarily about personal wealth and economic markets. 

Prior to this, Cameron worked for Australian Associated Press. He graduated from the University of Wollongong with a double degree in communications and commerce.

You can contact him on: This email address is being protected from spambots. You need JavaScript enabled to view it.

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